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Archive for Thursday, June 25, 1998

KOCH TRIAL SLOW GRIND FOR JURORS

June 25, 1998

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A working mother from McLouth had the fortune -- or misfortune, judging from your perspective -- to spend quality time with the Koch brothers in Topeka.

Nancy Smelser has devoted 10 years to producing mind-bending jigsaw puzzles for Hallmark Cards in Lawrence.

Watching three boys grow up in McLouth has offered her a glimpse of sibling rivalry.

But Smelser's experiences at home and work couldn't fully prepare her for jury duty in Koch vs. Koch, one of the most extraordinary civil trials in Kansas history.

The trial brought four Koch brothers -- with a combined net worth of nearly $6 billion -- and legions of lawyers to a high-stakes showdown in federal court in Topeka.

This 11-week trial was about money, of course. Piles of it. More than the average person would be able to earn in 1,000 lifetimes.

But, Smelser said, it had much to do with ego. More precisely, the personal conflict between yachtsman and crime-fighter Bill Koch and an older brother, Charles Koch, chairman and chief executive officer of Koch Industries.

Smelser's bottom line: ``This was a family dispute that turned into 15 years of litigation. Families need to sit down and resolve their differences without going to these extremes.''

Koch primer

The Koch empire is led by Charles Koch of Wichita. He was 32 years old when he took over Koch Industries in 1967, following the death of his father, Fred Koch.

Over a 30-year period, Koch Industries expanded its oil businesses and diversified into other areas of the economy. Annual revenues climbed from $250 million to more than $30 billion. Koch Industries is now the second-largest privately held company in the United States.

Charles Koch's ally by blood and business, David Koch of New York, is executive vice president of the conglomerate. These siblings are tied for 65th on Forbes magazine's list of richest Americans.

Bill Koch of Palm Beach, Fla., made headlines by winning sailing's prestigious America's Cup in 1992 and donating millions of dollars to the nonprofit Koch Crime Commission in Kansas.

Frederick Koch, whom Smelser found herself most intrigued by during the trial, devotes himself to the arts and restoring European castles.

The family's trouble dated to 1983 when Bill and Frederick, along with other stockholders, sold 5.5 million shares of Koch stock to Charles and David Koch for $200 a share, or $1.1 billion. Bill and Frederick pocketed about $800 million.

Former stockholders, led by Bill and Frederick, filed a lawsuit in 1985 because they believed Charles and David, in collaboration with other Koch executives, concealed facts about the potential profitability of Koch Industries to avoid paying a higher price for the stock.

In the suit, plaintiffs claimed the stock should have been worth $262 a share. They sought $339 million in actual damages as well as interest payments and punitive damages that could have pushed the payout to more than $1 billion.

After years of wrangling, the question was set for jury trial in the state's capital city before U.S. District Judge Sam Crow.

Reporting for duty

Smelser, 45, coordinates the puzzle department at Hallmark's production plant in Lawrence near the Kansas Turnpike. Her unit makes all of the company's jigsaw puzzles. Each year, during the spring, she is responsible for pushing production to a peak in anticipation of the Christmas holiday.

It's not an ideal time to miss work.

Then, in January, she received a notice that she would be on call for federal juries during April and May. Not the best of news, but Smelser had served on a jury 10 years ago. That workers' compensation trial lasted three days.

``Then in February, a huge packet came in the mail,'' Smelser said. ``There was an 18-page survey of preliminary questions about the Koch case.''

There were inquiries about her background, employment history and workplace management style. She was asked about her knowledge of people who might be called to testify. That list of names was four pages long.

For reasons Smelser can only speculate about, she was among six men and six women selected for the Koch trial. Her peers included a truck driver, a nurse, school teachers and retirees.

The trial began in April. Smelser was prohibited from reading or viewing news accounts about the trial and blocked from discussing the case with outsiders. Her employers and family would have to cope right along with her.

``Just take 11 weeks out of the year, almost a quarter of a year....''

Her kids never really understood what she was doing in Topeka.

``My middle son thought I was on a trial for Coca-Cola.''

Justice grinds slowly

Some expert testimony at the trial was, to put it mildly, dull. Jurors sitting in their box seats watched as trial regulars in the audience dozed.

``Parts were agony. At times, it was hard to concentrate.''

Smelser can now toss around accounting terms like a CPA -- not that she'd want to. On the other hand, she learned a lot of intriguing stuff about the oil business.

``Before this case, all I knew about the oil industry was how to pump my own gas.''

During the trial, some of the best minds in the world testified about the inner workings of an oil refinery. A particular focus was the potential value of an expansion at the company's Pine Bend crude oil operation in Rosemount, Minn.

All that testimony required well-heeled witnesses: ``Money was no object.''

The courtroom audience added spice to the juror's days. Former Kansas Gov. Joan Finney attended much of the trial. She sat on the plaintiff's side of the room.

``I think she was there to support Bill Koch,'' Smelser speculated. Perhaps payback for funding the Koch Crime Commission.

Smelser said jurors felt they were always under the spotlight in the court. Tension escalated around the April 19 anniversary of the deadly bombing of the federal building in Oklahoma City. Security in the building picked up a couple notches, she said.

``At the anniversary ... there was apprehension. It was powerful. It was a relief when that passed over.''

Not all the jury's time was spent in open court. There was plenty of down time. Some brought novels from home. About half the jury read a John Grisham novel, ``The Runaway Jury.'' It's about a civil trial involving a powerful company and high-priced lawyers and consultants.

Smelser felt it hit too close to home. ``I couldn't finish it. It was just too weird.''

Jurors were drawn together by the drama in the courtroom and real world events outside the building. Proceedings were interrupted by three funerals. One juror's husband was rushed to a hospital for emergency surgery.

The length of the trial had other consequences. One juror was pressured to use vacation time to cover for her absence. Another member of the jury, an independent truck driver, worked at every opportunity. He would sometimes make a delivery and park the rig outside the courthouse.

``If he didn't drive, he didn't get paid,'' Smelser said.

Smelser was able to work very little each week during the trial. But Hallmark Cards -- ``a great place to work'' -- paid her regular salary anyway.

Another juror had to scuttle vacation plans. She had bought a nonrefundable ticket to Europe. It took a letter from Judge Crow to convince the airline to refund her money.

``People's lives were definitely interrupted.''

The Koch jurors bonded tightly. As serious as everything was in the courtroom, the jury room was ``absolutely hysterical.''

``We got along really well,'' Smelser said. ``We're planning a reunion.''

Verdict clarification

The jury listened to all the testimony, then waded through 84 pages of instructions from Judge Crow about the laws applying to the case. They deliberated nearly two full days.

Jurors decided last Friday that one or more of the defendants had made misrepresentations or omitted information in 1983 about the company's Pine Bend refinery. However, the jury said that information wasn't significant enough to influence the price of Koch stock. There would be no payoff for the plaintiffs.

Smelser said media accounts of the verdict included comments that indicated the rulings should be viewed as a victory for one side or the other.

``I'd like to clarify that,'' Smelser said. ``There was fault on both sides. My personal feeling is that everybody lost. This is a family that will never be a family anymore.''

Smelser said the staggering wealth of people involved in Koch vs. Koch was difficult to block out. The level of damages sought was mindboggling.

``These people are on a different level totally from most of us,'' she said. ``But the wealth didn't enter into the decision.''

Cash wasn't at the top of the agenda for plaintiffs or defendants, she said.

``The money wasn't as significant to them as winning the case. They sought acknowledgment of a wrong.''

Smelser said she emerged from the trial as a survivor with a message.

``People need to be content with what they have. I can't imagine how much was spent on attorneys' fees and consultants for a personal vendetta.''

Smelser said she didn't want to contemplate the cost of the legal war to the public: federal court judges, clerks, guards, court reporters, et al.

``Every taxpayer in America should be angry. This is ridiculous.''

After the verdict, Bill Koch vowed to appeal to the U.S. Circuit Court of Appeals. He compared the status of his legal effort to the 10th round of a 15-round championship boxing match.

Smelser wasn't surprised.

``He's not going to be happy until he gets his pound of flesh from Charles.''

No matter what happens with the Kochs, Smelser knows she will never again sit in judgment of this family's misfortune. In this matter, she's completed her duty to society.

``I certainly have.''

-- Tim Carpenter's phone message number is 832-7155. His e-mail address is tcarpenter@ljworld.com.

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